When it comes to investing, it's all about getting a good ROI or return on investment. As such, it's important to do your research if you plan on investing to give yourself the chance of the best investment returns possible.
With that being said, remember that even with extensive research, there is still that element of chance, luck, or whatever you might like to call it.
There isn't much any of us can do about luck. What we can do, however, is provide you with some information that could help you invest more wisely, including covering three important things you need to know about investment returns.
3 Things You Need to Know About Investment Returns
To start, let's go over what a good ROI means in the first place.
What makes a good ROI
First, know this: what defines a good return on investment for one person can be totally different from another (more on that in a moment). It comes down to the type of investments you make, your tolerance for risk, your goals, and much more.
That being said, conventional financial wisdom says a good ROI is anything over 7%. As Forbes elaborates: "This is also about the average annual return of the S&P 500, accounting for inflation.
Because this is an average, some years your return may be higher; some years, they may be lower. But overall, performance will smooth out to around this amount."
How to calculate investment returns
Next, you need to know how to calculate the ROI on your own investments.
Here's a simple formula to do just that:
ROI = (Ending value of investment – Initial value of investment) / Initial value of investment
In action, that could look like: ROI = ($21,000 - $20,000) / $20,000 = 5%
Successful investment returns mean different things for different investments
Remember what we said about a good ROI is different for one person than for the next? The same goes for the type of investment you're making.
For example, you might be happy with a 5% ROI on a particular investment, while on another, anything less than 10% is unacceptable.
Let's consider some different asset types and what good investment returns might look like.
- Cash: These assets are known to depreciate over time in many cases. With that in mind, people often consider ANY ROI a good one.
- Gold: This asset is known to go from extreme highs to extreme lows over a few short years. But largely, it's considered "a store of value that keeps its buying power."
- Bonds: Between 1926 to 2020, the average ROI for bonds is 6.1%.
- Stocks: The average annual return for stocks since 1926, the average annual return is 10.1%
Finally, let's also consider real estate investment returns.
According to the S&P 500 Index and Mashvisor, here's what those averages look like:
"The answer lies with the S&P 500 Index. According to the Index, the average return on investment in the US is 8.6%. The average rate of return heavily depends on the type of rental property.
Residential rental properties, for instance, have an average return of 10.6%. On the other hand, commercial real estate has an average return on investment of 9.5%."
Investing in the Success of Your Business with Two Roads
Now it's time to talk about a different kind of investment: outsourcing your bookkeeping, enrolled agent, or CFO advisory services. When you decide to do this, you're making an investment in your business that has a great ROI if you choose an experienced and trustworthy company to handle the job.
And that's exactly what Two Roads is! We relieve the burden and mystery of bookkeeping, empowering business owners to focus on what they’re most passionate about and do best. Click here to learn more about us and the services we offer.
